What factors colour your credit application?

When you apply for a loan, your prospective creditor will assess whether you can afford the monthly repayments. Most consumers are aware that their credit score, and corresponding report, come into play in this process.

But what do creditors actually consider, and what most interests them?

Tip: You can get your credit score by going to this page and signing up with JustMoney.

What do creditors consider?

When you take responsibility for a large sum of money, such as a loan, which needs to be repaid, your lender will require some kind of guarantee that you will be able to return it.

The top things creditors will consider are as follows.

• Resources: If you don’t receive a regular income, or if your income is very small, creditors will be hesitant to lend you money as repayment could well become a problem.
• Collateral: If you take out a personal loan, which is a form of unsecured lending, your creditors won’t have anything as collateral if you default. However, if you take out a home loan or vehicle finance, they will be able to claim your asset if you don’t meet your repayments.
• History: The most important information that your creditor will consider is your credit history. If you don’t have any history, which will result in a credit score of close to zero, they will be hesitant to lend you money. The same will apply if you have a bad borrowing record.

These factors will also come into play in determining what your interest rate and monthly instalments will be.

READ MORE: What's considered a good credit score?

What counts on your credit report?

Your credit report is compiled by the credit bureaus and it’s based on information they receive from creditors across the country. For example, if you have a store account with Edgars, they will let the bureaus know whether you make your payments on time and in full.

This then allows other creditors to see whether you can be trusted. When they request your credit report from the bureaus, they will assess the following:  

• Do you pay your accounts on time each month?
• Do you pay the full amount that’s due?
• What percentage of your available credit are you utilising?
• Are there any court judgements or late notices against your name?
• For how long have you managed your credit?

If they are satisfied with the answers, they will likely approve your loan. However, if they are not, you will either be declined, or you will be charged a hefty interest rate.

READ MORE: Do this if your credit score is negatively impacted by creditor error